Britain’s second-biggest supermarket chain Sainsbury’s has reported a £261m loss for the last financial year – largely due to falling fuel sales and the impact of the COVID-19 pandemic.
Retail sales at Sainsbury’s, excluding fuel, rose by 7.3% but underlying profits were down by 39%. Fuel sales also fell 39%.
In total, COVID-19 measures introduced by the supermarket cost more than £485m since the pandemic struck in March 2020. Sainsbury also spent more than £100m on higher staff salaries during the same time period.
However, Sainsbury did capitalise on the shift within retail to digital, with online grocery sales doubling during the year to hit £12.1bn. As a result, profitability of online sales grew from 8% to 17%.
Sainsbury’s CEO Simon Roberts said: “This year’s financial results have been heavily influenced by the pandemic. Food and Argos sales are significantly higher, but the cost of keeping colleagues and customers safe during the pandemic has been high. Like our customers, we are all looking forward to things feeling more normal over the coming months and getting excited about a summer of celebration, but we are also cautious about the economic outlook.”
Shares in Sainsbury’s fell 3% following the announcement.
Susannah Streeter, senior investment and markets analyst. Hargreaves Lansdown said: “J Sainsbury rose to the challenge of helping feed the nation during lockdowns, but the costs of operating through the crisis have seriously dented its bottom line. Retail sales, excluding fuel rose by 7.3% but underlying profits are down by 39% and the supermarket made a statutory loss of £261 million, taking into account the costs of restructuring the business.
“Redesigning layouts to keep customers and staff safe, paying colleagues in full who needed to shield all added with £485 million spent on covid related costs. Sainsbury also spent £100 million on higher staff salaries and special recognition payents to colleagues for their efforts during the crisis, which although a significant outlay, should help with staff retention going forward. The company has flagged high customer approval ratings for an in-store experience which should also bode well for the coming months as more shoppers venture out once more, potentially helping them retain new customers.
“J Sainsbury has capitalised on the accelerated shift to digital with online grocery sales doubling during the year to hit £12.1 billion and gaining more market share than its competitors. The retailer has also streamlined its digital operations, with profitability of online sales growing from 8% to 17%. The closing of Argos standalone stores, moving outlets into Sainsbury’s supermarkets has come at a high cost, but already the rewards are being reaped from the move. Online sales at Argos increased by 68%, helped by click and collect services, making it easy for people to pick up items while doing their essential grocery shops.
“The extent to which customer behaviour is changing now that the virus has been suppressed and restrictions on shopping have been lifted, is far from clear. That’s why J Sainsbury, like many other retailers, views the future as uncertain. But despite the accounting loss, its proposed a final dividend of 7.4 pence per share showing its quiet confidence in continued cash generation and the expectation of a bounce back in profits by 2022 to exceed 2020 levels.”
James Andrews, personal finance expert at money.co.uk, said: “While supermarkets have been seen as among the winners of the pandemic – it’s not been without cost. Sainsbury’s profit hit shows just how much they’ve spent on Covid safety, up to £485 million, as well as the restructuring of Argos.
“It’s also shown how fast the move to online ordering has accelerated – with part of that £485 million spent on new slots and capacity added.
“The outlook statement shows that this isn’t a flash in the pan, with extra capacity here for the long term and deals signed with the likes of Deliveroo not going away any time soon. However, Argos’s sales rising by 11% shows it’s restructure is one positive to come from the last quarter for Sainsburys.
“With fuel sales expected to be on the rise again too, we can expect continued strong performance – but competition from the likes of Aldi and Lidl hasn’t gone away. The following year for the industry will definitely be one to watch to see how the company reacts to society opening up, as well as how effective new price matching schemes will be.”
Neil Shah, Director of Research at Edison Group, comments: “Growth in J Sainsbury PLC’s grocery, general merchandise and digital sales – up 7.8%, 8.3% and 102% respectively – was unable to fully mitigate the impacts of the pandemic for the supermarket chain. Whilst total group revenue was up 0.2%, the group announced a decrease of 39% in underlying profit before tax to £356million, largely attributed to heavily reduced fuel sales and £485million of direct COVID-19 costs.
“Despite this, the group noted strategic successes including the growth of Groceries Online from 8% to 17% of grocery sales and an increase of 68% in Argos digital sales. The board has proposed a final dividend of 7.4p alongside a full year dividend of 10.6p.
“The company maintains an optimistic outlook, and investors should take confidence that the group anticipates increased underlying profit before tax in the upcoming financial year to align with forecasts of approximately £620million, as well expecting to reduce net debt by at least £950million by March 2023. Although the economic outlook remains uncertain, the easing of lockdown is set to benefit supermarkets as footfall will return to stores, whilst permitted travel should the drive fuel sales that have been sorely lacking.”